Cascading global financial collapse now a very real risk as Russia heads for default
08/11/2015 / By collapsenews
Russia is teetering on the edge of solvency and economic collapse as its currency collapses, interest rates rise and average Russians flock to stores to stock on up on anything they can get their hands on.
Meanwhile, some geopolitical analysts believe that the economic turmoil — touched off in part by Western sanctions in response to Moscow’s “annexation” of Crimea and suspected military involvement in Ukraine, and in part due to slumping oil prices — could put Russian President Vladimir Putin in a position where he may use aggression to distract his people from their plight.
As reported by The Associated Press (AP), the sudden financial crisis in Russia has risks of spilling over into other countries and could serve to damage other parts of the global economy.
As the AP noted:
With economies in Europe, Japan, China and Latin America already ailing, fresh threats have emerged from Russia’s shriveled currency, its move to dramatically boost interest rates, the damage from plummeting oil prices and Western sanctions over Russia’s action in Ukraine.
To the latter point — sanctions — President Obama was set to sign a bill leveling new sanctions against Moscow this week, a move that would trigger some kind of response by Russia, according to what Foreign Minister Sergei Ryabkov said last week.
The new sanctions are aimed at Russian weapons makers and investors in Russia’s high-tech oil projects.
New sanctions, further monetary degradation, and geopolitical risk
“We will not be able to leave that without an answer,” Ryabkov told Russia’s Interfax news agency, as reported by CNBC.
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The AP noted that Russia’s currency, the ruble, dropped some 10 percent in value over a two-day period recently, which has only served to worsen the country’s economic position. Investors now fear that there could be Russian default on foreign debt obligations, which would then project hundreds of billions in losses on lenders around the world.
In addition, the AP reported, some analysts are worried that renewed economic tensions could further cause a deterioration in relations between Moscow and Washington, as well as between Moscow and European capitals, especially if new sanctions are imposed. Obama has committed to the new sanctions, the AP reported.
Not many believe that Putin will back down as a result of U.S. pressure, however.
“I do not expect him to blink,” Ian Bremmer, president of the Eurasia Group, a political risk and consulting firm, told the AP.
Any financial consequences for the United States would be relatively minor due to Russia’s diminished economic status. But again, any economic calamity in the East European giant could have widespread geopolitical implications.
Jake Novak, writing for CNBC, argued that, because Putin is neither a good man nor a good leader, geopolitical risk is a very real concern.
“This would be something worthy of extreme vigilance for the U.S. government and investors alike even if Russia were a true democracy governed by at least semi-responsible leaders,” he wrote. “But it’s worse. Much worse.”
“He’s not known for holding back”
He continued:
Vladimir Putin has always been a lot more like a petty Latin American dictator than a statesman. Think about it: He made his bones in the secret police, consolidated his power with a ring of super wealthy backers, and he claps political opponents in jail at a moment’s notice.
In short, Putin is like a Augusto Pinochet or a Juan Peron … but with much more steely resolve, a massive military, and nuclear bombs.
Novak argues that, even with Putin’s record of behavior there for all to see and recall, he doesn’t believe that the Obama Administration or the investment community is prepared for all the damage Putin can unleash on his own people, his neighbors and on the U.S. financial markets.
“There is nothing more dangerous than a wounded animal,” he observed. “Vladimir Putin is wounded — and he’s not known for holding back.”
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